CAMBRIDGE, Mass. – Turning the issue of raising the debt ceiling into a political tool is “simply unconscionable,” economist and ex-Obama adviser Larry Summers said this morning.
Speaking at a forum for journalists at the Lincoln Institute of Land Policy , Summers said using the debt ceiling issue for political reasons “is the moral and practical equivalent of inviting children to play in a room full of dynamite.”
Summers, ex-president of Harvard, ex-Treasury secretary (1999-2001) and director of National Economic Council for the Obama administration, 2009-11, said the U.S. economy is coming back, noting how rarely you hear people talking about a double-dip recession anymore. Corporate profits are healthy, and so on and so on.
Most of his talk was about what it was like to be inside the Obama team after the 2008 election and early in 2009. Things were so bad that jobs were being lost at a faster rate per month than at any time since those statistics had been kept.
The basic economic theory that you learn in Econ 101, about markets and the way the economy works as an equilibrium (Demand up? Supply goes down. Supply up? Prices down; demand up. Etc.) is “basically right most of the time.” But, he said, “two or three times a century a different dynamic takes hold.” The self-equilibrating function gives way to an avalanche of de-stability, a self-fulfilling prophecy that leads to a downward spiral. (Less consumer spending? Jobs go away. Fewer jobs? Less consumer spending. Etc.)
Obama decided that confidence could be the cheapest form of stimulus. He decided it was more important to boost confidence than exact “vengeance” (interesting word, especially from a guy like Summers) against the people who caused the problems, e.g. the banking, mortgage and financial industries.
Then began a fight over how best to use stimulus money. Summers described the tension between people wanting projects that could get done quickly and the visionary projects.
” ‘Shovel-ready’ is the great American lie,” he said. Bureaucrats knew that projects always take longer than you want, he said, noting that the “Hoover Dam” opened in 1937. (Hoover lost the presidency in 1932.)
When the stimulus money arrived at state governments, he said, “It can only be described as a urinary Olympics between the governors and the mayors.” The governors tended to think the mayors were “a bunch of useless slugs.”
Summers essentially defended the decisions the Obama administration made – no surprise. And he said the lack of criminal prosecutions for the financiers who brought our whole economy down is likely because no crimes were committed. “Being stupid is not a crime,” he said. “Lending money unwisely is not a crime.”
He did make something of an exception for the former Countrywide CEO Angelo Mozilo, whom he noted was being criminally investigated, and then the investigation was dropped.
Next up to speak is ex-Mayor of Washington, Adrian Fenty. The conference sponsors are the Lincoln Institute, the Nieman Foundation, and Harvard’s Graduate School of Design.